What Are DApps? How Do They Work? A Comprehensive Guide

What Are Dapps?

Decentralized applications, or dApps, are a new way of interacting with personal finance. They are essentially blockchain-based smart contract-powered versions of traditional apps. The Ethereum network popularized dApps, but other layer-1 networks such as Cardano and Solana also host dozens of dApps.

These applications offer a decentralized alternative to standard applications, and by using smart contracts, they remove the need for intermediates. Their utility is far-reaching and constantly growing, but their most prominent role has been in DeFi, where they offer an alternative to the traditional centralized financial model that dominates the global financial system.

Key Takeaways

  • DApps are blockchain-based smart contract-powered versions of traditional apps.
  • DApps provide much more in terms of a feature set than traditional apps due to their decentralization and automatic executions.
  • Many consider the future of finance will be impacted by blockchain-based applications and DeFi.

What Is The History of daaps?

The concept of Decentralized Applications (dApps) was introduced in 2014 by a group of authors, including David Johnston and Shawn Wilkinson, in their paper titled “The General Theory of Decentralized Applications, dApps.” The paper defined dApps as entities that must have open-source code and work without third-party intervention1.

They must be user-controlled, and all information must be held in a publicly accessible blockchain. Decentralization is a key feature, as there cannot be a central point of attack. dApps must have some sort of cryptographic token for access, and contributors must be rewarded in the said token.

The paper classified three types or layers of dApps based on the way users interact with them. Layer-one dApps exist by themselves on their own blockchain, such as Ethereum. They require a consensus algorithm and baked-in rules. Layer-two dApps are generally built on top of layer one, harnessing the power of the said blockchain. They utilize tokens for interactions and are often considered protocols.

Put simply, dApps are various applications that are powered by a blockchain. Some might build on top of that initial layer, but they’re all considered DApps if they meet the criteria mentioned above.

Ethereum is considered the first platform to introduce dApps as it powers automated if-then statements called smart contracts. These contracts are immutable, as rules and limitations were baked into their code, enabling parties to transact without an intermediary and removing the need for centralized platforms2.

Why Would Someone Use Dapps over Standard Apps?

DApps offer several advantages over traditional centralized applications. One of the most significant benefits including the following:

  • Lower fees and faster transactions due to lack of third-party involvement.
  • Increased security and resistance to single-point-of-failure attacks due to decentralization.
  • Greater privacy as users control their data and can choose what to share.
  • Wider applicability across various industries like gaming, medical, governance, and file storage.
  • Similar user experience to traditional applications with the benefits of decentralization.
Third-party involvementNoYes
Transaction feesLowerHigher
SecurityNo Single Point of FailureSingle Point Of Failure
ApplicabilityWide RaneWide Range
Dapps offer several advantages over traditional apps.

What Are Some of The Limitations of Dapp?

DApps may promise a utopia of decentralized power, but the path there is paved with pebbles. While they shine with potential, limitations, and challenges still linger. Let’s unfurl the hidden folds of these innovative applications and unveil their rough edges:

Limitations of DApps:

  • Scalability hurdles: Imagine rush hour traffic on a blockchain highway. As dApps gain traction, congestion can skyrocket, leading to slow transactions and high fees3.
  • User complexity: Navigating the blockchain wilderness isn’t for everyone. Technical interfaces and managing private keys can be daunting for uninitiated users.
  • Smart contract woes: Code is king, and flawed code can be catastrophic. Errors in smart contracts can lock away funds or manipulate systems, leaving users with little recourse4.
  • Regulatory gray areas: Unclear regulations can create uncertainty for developers and users alike5.

What Are Some Of The Most Use Cases For Dapps?


Decentralized applications are transforming the financial industry by providing a platform for borrowers and lenders to do business without intermediaries. Unlike traditional banking, where lenders earn interest rates based on their savings and banks take a cut for providing a space to store funds, dApps allow lenders to earn 100% of their interest, and borrowers have more control over interest rates and their time to pay it off6.

Smart contract technology enables the confirmation process to occur immediately, eliminating the need for lawyers and other third parties. Dapps provide more control and faster transactions, making them an attractive alternative for borrowers and lenders.

Social Media

Social media dApps offer users more freedom of speech by eliminating censorship. If some posts become problematic, the community can vote to have them taken down. Additionally, influencers can earn more by using a built-in tipping system using tokens. Users can run ads and earn their full payments rather than a company taking a cut7.


DApps have revolutionized the gaming industry by enabling players to own tokenized assets, which grow in value over time. For example, in CryptoKitties, players acquire a tokenized asset, a cat, which grows over time and can be sold for whatever price a buyer is willing to pay. Some cats can breed with other cats, creating even rarer, potentially more valuable cats. Players can trade or collect cats, making their time investment genuinely valuable8.

Voting and Governance

Voting dApps can open up the voting process to everyone by using smart contracts. The community can vote on a list of proposals, and users can stake their vote with tokens, allowing anyone to vote anonymously. Votes are stored in a decentralized network, making them immutable and untamperable. Smart contracts can reward voters with a relevant token for their efforts, incentivizing more people to vote than ever before9.

Which Dapps Have The Most Total Value Locked?

The success of dApps is often measured in total value locked, which refers to the amount of value in USD locked in their smart contracts. DeFi Lama data shows that several applications have billions of dollars locked in their smart contracts, which shows just how popular these apps have become in recent years.

  1. Lido ($20B TVL): Staking pool for Ethereum, allowing users to earn staking rewards without running their own validator nodes. Lido simplifies staking and improves decentralization by pooling ether deposits.
  2. Curve ($1.7B TVL): AMM (Automated Market Maker) specializing in stablecoin swaps, offering low fees and high liquidity. Users deposit stablecoins to earn swap fees and interest through liquidity pools.
  3. MakerDAO ($8B TVL): Decentralized stablecoin issuance protocol for DAI, pegged to the US dollar. Users lock collateral like ETH to mint DAI and earn interest via stability fees. DAI fuels other DeFi applications, creating a diverse ecosystem.
The liquid staking solution LIDO has over $20 billion in TVL.
The liquid staking solution LIDO has over $20 billion in TVL. Source: DeFiLama

Final Thoughts on Dapps

Decentralized applications have come a long way since they were first deployed on Ethereum. These applications have the potential to fundamentally change several aspects of the economy by removing the need for third parties. DeFi is arguably the best example of how dApps can benefit everyone by offering us an alternative to the centralized financial system that has failed to build a truly inclusive and fair system. However, dApps still have a long way to go before achieving mainstream adoption, as hacks and scams have discouraged people from onboarding, and the complexity of some of the applications reduces their appeal among non-crypto users.

Frequently Asked Questions

What Are Dapps?

DApps, or decentralized applications, are software programs that run on a peer-to-peer network (think many computers working together) instead of a single server. This network is often a blockchain, a public, distributed ledger that keeps track of all transactions and data.

How do decentralized applications (DApps) function?

Decentralized applications (DApps) are built on blockchain technology, which is a distributed ledger that records transactions across a network of computers. DApps function by running on a blockchain, which enables them to operate without a central authority or server. Instead, they rely on a network of computers to validate transactions and execute smart contracts, which are self-executing code that automatically enforces the rules and regulations of the application.

What are the primary advantages of using DApps over traditional apps?

The primary advantages of using DApps over traditional apps include increased security, transparency, and decentralization. Because DApps run on a blockchain, they are more secure than traditional apps, which are often vulnerable to hacking and other security breaches. Additionally, DApps are more transparent, as all transactions are recorded on the blockchain and can be viewed by anyone. Finally, DApps are decentralized, meaning that they are not controlled by a single entity, which makes them more resilient to censorship and other forms of control.

What are some prominent examples of DApps in use today?

Some prominent examples of DApps in use today include CryptoKitties, a blockchain-based game that allows users to collect and breed digital cats, and Augur, a decentralized prediction market platform that allows users to bet on the outcome of events. Other examples include Golem, a decentralized supercomputer network, and Brave, a blockchain-based web browser.

Peter Barker


Peter Barker

Peter is an experienced crypto content writer and a DeFi enthusiast with more than 3+ years of experience in the space. Previously a journalist and news editor at a leading European news sourcing agency.

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